Weekly Tax News – 3 December 2018

Weekly Tax News – 3December 2018

Member States show uncertainty about digital taxation

On 28 November, a new compromise text on the “digital services tax” was submitted for discussion to the Member States’ Permanent Representations to prepare the ECOFIN Council meeting on Tuesday 4 December. The Austrian Presidency of the Council sent a note on 23 November where it acknowledges that a number of delegations cannot accept the text for political reasons. The German Finance Minister Olaf Scholz reiterated his preference for a two-step approach, an agreement within the OECD and then a European solution if it fails by 2020. At the moment, the Member States who are not ready to agree with the proposed directive can be grouped around three positions: Ireland, Sweden, Denmark and Finland are strongly opposing the proposed directive; Germany, the Netherlands and the United Kingdom are asking for more time; Luxembourg, Cyprus and Estonia would agree with the compromise text.

The European Parliament calls for action on Cum-Ex scandal

On 26 November, Dr. Gerhard Schick (Member of the German Bundestag, Member and co-rapporteur of the former Bundestag Inquiry committee on the Cum-Ex scandal), Prof. Dr. Christoph Spengel (ZEW Research Associate and the Chair of Business Administration and Taxation II at the University of Mannheim) and Mr Oliver Schröm (founder and head of the international collaboration of the project “The CumEx Files” and the Editor-in-chief of the German non-profit newsroom CORRECTIV) participated to a joint hearing of the ECON and TAX3 committees of the European Parliament on Cum-Ex scandal. Answering to several questions of the MEPs, they explained the loopholes in the tax law that have permitted massive tax fraud and cost tax payers across 11 European countries (in particular Germany, France, Spain, Italy, Denmark and Belgium) around €55 billion. The malpractice involved banks and stockbrokers trading shares with (‘cum’) and without (‘ex’) dividend rights to conceal the real identity of the actual owner, allowing both parties to claim tax rebates on capital gains tax that had only been paid once.

On 29 November, following the hearing, the European Parliament issued a resolution calling for the perpetrators of these trading schemes (tax advisers, lawyers, accountants, banks) to be brought to justice. MEPs ask the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) to conduct an investigation to determine who is involved in these schemes and to asses whether there has been a breach of EU or national law. Furthermore, they call on the European Commission to include transparency in dividend arbitration schemes within DAC 6 and to establish a “European financial police within the framework of Europol as well as a European framework for cross-border tax investigations”.

Moscovici reiterates the idea to shift away from unanimity in tax matters

In an exchange of views with the members of the TAX3 committee on 27 November, Pierre Moscovici pointed out the success of 14 proposals made by the European Commission in the field of tax transparency and tax justice that have been unanimously approved by the Council since 2014. He stressed the importance of the next agreements to be reached (either during this mandate or in the next one) on the taxation of the digital economy and on the reform to improve the functioning of the code of conduct group for business taxation. Moscovici highlighted the importance of the support of the European Parliament on his proposal to shift away from unanimity principle in the Council for tax matters. Finally, he stressed the importance of a subcommittee like TAX3, encouraging the idea of having a standing TAX subcommittee in the next mandate. Moscovici answered to several questions of the MEPs, in particular in relation to the relaunch of CCCTB (Luděk Niedermayer, PPE, Czech Republic), on a minimum effective tax rate (Jeppe Kofod, S&D, Denmark), on VAT frauds (Dariusz Rosati, EPP, Poland) and on the spillover effects of EU tax policies on developing countries (Elly Schlein, S&D, Italy).

On 27 November, the co-rapporteurs Jeppe Kofod and Luděk Niedermayer presented the final draft report on financial crimes, tax evasion and tax avoidance to the TAX3 committee. The co-rapporteurs stressed the importance of the fight against tax evasion and anti-money laundering and the progresses made in these areas at EU level (in particular with the adoption of ATAD, AMLD and the work-in-progress on VAT and on the taxation of the digital economy). They have also highlighted that the cooperation between Member States should be further enhanced in these areas and underlined the importance of a harmonized approach to some of the most relevant topics (e.g. CCCTB and crypto-assets).

On the same day, after the presentation of the report, Sophie Maddaloni (Tax Director at the Kering Group), Adam Cohen (Head of Economic Policy EMEA at Google) and Alan Lee (Tax Public Policy Manager at Facebook) answered to several questions from MEPs on the tax structures of their respective businesses in a hearing titled "Aggressive tax planning schemes within the European Union”. Maddaloni explained that the Swiss headquarter of the Kering Group (LGI) was set up 20 years ago and carries out logistics and distribution activities, that represent the core business of the company. Cohen and Lee described the peculiarities of digital economy companies and how the allocation of their profits was the result of the application of the OECD transfer pricing rules.